giofranchi

Joel, is it an idea of yours, or is it Kraven's?! ;D Gio

Sorry, the excel files are in the thread about FFH Q3 2013 Results. Gio

No, Vinod! Not 20 years, only 16 years, and they are like this: Year 1, 2, 3: 0% CAGR Year 4, 5, 6: 35% CAGR Year 7, 8, 9, 10, 11, 12, 13: 0% CAGR Year 14, 15, 16: 35% CAGR This would increase BVPS 6 folds in 16 years, which is more or less an average 12% CAGR. I think I have linked the excel files in a previous post of this thread. If you find some errors in them, I wouldn’t be surprised… and please let me know! :) Gio

Al, I know I am desperate and don’t have a chance… but it has been really a lot of fun!! I have rarely enjoyed you guys so much! You have made my day… no matter what happens this evening! Thank you very much! :) Gio

WOW! Now the points to remember by heart are 13… Guess I will have to make use of my MEMORY PALACE!! ;D ;D ;D Gio PS Now that I think of it, I can add point n.15: talk to her about your memory palace! Women love men with prodigious memories! ;D

Well, if I have understood you correctly, it seems to me that your view belongs to a 25-50 years time horizon, instead Mr. Watsa’s view belongs to the next 5-10 years. Both can be correct! I have no doubt that in due time we will prosper greatly, but I thought you have asked why Mr. Watsa expects deflation in the next 5-10 years. As far as central banks are concerned, I was thinking more about their balance sheet than about developed countries debts: it seems to me unquestionable that they have already expanded their balance sheets in an unprecedented way… They could go on expanding them, but, if asset bubbles burst, to no tangible avail: when and if financial asset prices come down, confidence in central banks will be broken… And I don’t see how more of a medicine that has ceased to work might do any good… If, on the other hand, I haven’t understood you correctly, sorry: I have a date tonight, and my mind is already there! ;D Gio

Wonderful Kraven! I knew you would never let me down! Unfortunately, n.4 won’t work … She runs 10 km in 49 min. … I guess my physical prowess cannot impress her very much… But all other points I am going to learn by heart before evening comes!! ;D ;D Gio

+1! As already said: Just be yourself! ;-) x) From her profession to judge you most likely will be met with Qs from her about your work and your company. Try to reply on overall level, but also with some balanced detail, but without beeing too elaborative, and at the same time without giving her the perception of beeing evasive on those questions. x+1) Stay out of the LRE.L and FFH-topics today on the board, and concentrate/focus on what is important for you today! ;-) [Your LRE.L and FFH positions are afterall long term!] x+2) I certainly second xtreeq's advice about getting her to laugh! Try get to know what kind of humor she is into. If things work out the way you want right now, you will really need that information for the future, because you are about to double the ups and downs in life for the future. Her downs will then also be your downs, and there is nothing as redemptive like a good laugh when life you lemons. x+3) Please remember this is a win-win situation, simply because she has already said yes to your invitation! Things might not for whatever reason work out as you want right now, but then you have had the pleasure and opportunity to get to know more about a person, who has caught your attention, interest and attraction! No talk about bumpy rides in this topic, please! Good luck Gio! :-) These all are wonderful advices! When I started the thread, I thought: “Oh dear, this has nothing to do with investments… And, as soon as Parsad reads this, he will ban it and cancel it from the face of planet earth…!!”. So, I wasn’t sure about its usefulness… Now, after reading all your answers, I have changed my mind: it is simply about a “different kind of investment”. :) And let me ask you a question: why jokes keep constantly popping in my mind while I am at work, and vice versa when in company of a woman not a single one comes to mind?!?! Is it only me?! ??? Gio

Thank you, nwoodman! Very nice and too kind! :) Cheers Gio

Practically all the inflation we experienced since 2008 is in the form of higher asset prices. If and when asset bubbles form, if and when asset bubbles burst, it will then be very difficult for central banks, which have already gone all-in, to contain them. Please, read the 3 questions Mr. Einhorn asks in Greenlight’s Q3 2013 Letter. Their answers make me nervous about what could happen… if and when asset bubbles form, if and when asset bubbles burst. giofranchi

WOW!! And what is supposed to happen on a second date? ... Utterly hopeless, I know ... Please, don't add anything else!! ;D ;D ;D Gio

Well, just don't forget that I was born in Canada!! ;D ;D ;D Gio

I was surely going to fall miserably on point n.6! Now that I know, I will keep my mouth shut! Hey, haven’t I already said that?! ;D Thank you also for point n.1, n.2, n.3, n.4, n.5, n.7, and n.8!! ;) Gio

he sees something? lol. the whole discussion the last few days has been about how he missed 4 years of bull market. he has been seeing something "very bad" for 4 years now. Did we not learn anything from this entire discussion? He's raising cash because he is investing in bbry. And there is no statistical indicator for US market that says there is a high risk of a crash. none. oh and one last thing. There is no deflation. Inflation is baked into our system. ps: perspective from a non owner: some of the fairfax shareholders are a "wimpy" bunch and are Short Term investors. pw is not going to give you a smooth ride. but he will get you to your "destination" in style. :) wellmont, I agree. Just be careful to not infer too much about the future from the past... Here is what I think: The more time passes and the more stocks (and asset classes in general) rise, the higher the probability Mr. Watsa will finally be proven right and the closer we get to that day. giofranchi

Another wonderful advice! I am already much more relaxed! This board works miracles!! ;) By the way, she works in the risk-management office in Banca Intesa Sanpaolo, so maybe just a bit about investments… No! No! Just joking! I will keep my mouth shut! ;D ;D Gio

Thank you, berkshiremystery! Always can count on you! :) Ignore the crowd in the restaurant?! That's a great advice! I guess one of the best way to be nice, right? Gio

Hi guys! This has nothing to do with investments… But in time I have come to reckon all of you on the board truly as “second family”… and now I need some words of wisdom from you! Tonight I am dating a woman for the first time in… years!! And right now I am simply… terrified!! ;D ;D ;D I guess I need a little help from my friends! :) Cheers, giofranchi

Al, sorry but I do not see any mathematical evidence that FFH is overvalued today… Have you taken a look at “My 7 lean years model for FFH”? It very simply considers a CAGR in BVPS of 12% (less than 15%!!) for the next 16 years. Then it applies a 9% discount rate, to arrive at FFH’s Present Value of Equity. And you get a present value of 1.54 x BVPS. This assumes that beginning in year 17 FFH completely ceases to create value… which, I hope you might agree with me, is quite conservative… Therefore, I think FFH’s Present Value of Equity, as computed by “My 7 lean years model for FFH”, significantly underestimates FFH’s fair value… Well now, as of yesterday FFH is trading at a multiple of $409 / $334.5 = 1.22 x BVPS. Yesterday’s dilution accounts for 5.4% of FFH shareholders’ equity, and BVPS today might be: $334.5 - $334.5 x 0.054 = $316.4. Even so, FFH is trading at a multiple of $409 / $316.4 = 1.29 x BVPS… significantly less than 1.54 x BVPS… which is significantly less than FFH’s fair value… How many margins of safety do you need?! I understand all your and Cardboard’s criticisms about FFH, but I do not understand the math… nor the assumptions behind your calculation of FFH’s fair value. PS If you need another margin of safety, what about a discount rate of 9% for a company whose 10 year average cost of capital is only 1.1%? Even if you don’t like to define the discount rate as the cost of capital, and you prefer instead to think about discount rate as the possible return from similar investments, stocks in the long-run have returned on average more or less 9%… Yet, I guess you agree that FFH is no average stock, and the proof is in the fact that during the last 28 years FFH has left the S&P500 far behind… Therefore, I also think that to apply a discount rate of 9% is another conservative assumption to arrive at FFH’s Present Value of Equity. giofranchi

A lot of bad news these days... :( giofranchi

Sincerely, I don’t think it is obvious at all… In fact, I don’t know much about macro, but, if I were to make a bet on the future state of developed countries economies, I would still side with Mr. Watsa… It will surely become clear… But I guess it will just take a little longer! giofranchi The federal reserve would have done everything in its power to fight inflation over the last several years if it was a real possibility. Inflation? I guess you meant deflation… Am I right? And, yes! The Fed has done all it could to fight deflation… but there is still no evidence it will ultimately be successful… I am not saying it won’t be… I am just saying that we still have to wait a bit longer. giofranchi

Sincerely, I don’t think it is obvious at all… In fact, I don’t know much about macro, but, if I were to make a bet on the future state of developed countries economies, I would still side with Mr. Watsa… It will surely become clear… But I guess it will just take a little longer! giofranchi

Hi Cardboard, I have read your analysis and I thank you: one of the reason I write on the board is to find people who disagree with me, and to listen to them carefully. Though people who agree with me are much more pleasant, those who disagree with me are much more useful! ;) This being said, I try to answer your points: First of all, I look for a 15% CAGR from each investment of mine. If I don’t believe that it is possible to achieve such a return, I do not invest. Please, mark my word “possible”: it certainly doesn’t mean “guaranteed”, nothing in this life is nor should be guaranteed… And I do not think that a 15% CAGR in BVPS is possible, because Mr. Watsa says so. I think it is possible, simply because they must get investment results, which are significantly worse, not better, than the ones they have historically achieved, in order to grow BVPS at a CAGR of 15%. Now to your points: 1 – I am not so sure: since the early ‘80s Bonds have been in a spectacular bull market, and the team at FFH was one of the best worldwide to capitalize on that secular trend. In future years that trend will most probably be reversed, and that’s when I would like to see more capital invested in stocks and wholly owned businesses. That’s also when “bad legacies”, like liabilities linked to damages made by asbestos, will probably have petered out and become less and less of a drag. 2 – It is true that CRs during the last 10 years have hardly stayed below 100%, but it is also true that policies written from 2003 to 2012 have brought in $43.0 billion of cumulative net premiums written at an average CR of 95.8%. Therefore, once again, problems of the past are still weighing on FFH’s underwriting results, but things are clearly improving. Furthermore, Mr. Andy Barnard, for whom I have great respect, has just begun supervising all FFH’s insurance & reinsurance operations. And, if he only gets close to replicating the success achieved at OdysseyRe… 3 – I think that in due time they will move closer and closer to the way of investing Al is suggesting. But, as I have already pointed out, not in a hurry… They will take their time, and rightly so imo. As long as macro is concerned, let’s just say that I am an agnostic… their macro bets imo are neither a plus nor a minus, I am just curious to see how all this will play out! 4 – Nothing to say about Mr. Watsa’s billionaire status… 5 – / 6 – As you know, I invest in BH… So, I simply guess we have different ideas of “trust”! ;D ;D 7 – I have already said what I think about the whole BBRY saga. Thank you again for your thoughts and analysis! :) Cheers, giofranchi

Cardboard, wow! You have written a lot and I will read all with much interest and calm. Although, you have started not very accurately… 15% CAGR “guaranteed”?!?! I don’t think I have ever said such a thing!! giofranchi

I can see foreign capital pouring in!! Ahahahahahahahahahahah!!!!!! giofranchi

Thank you Vinod! You are always very precise and I read and enjoy all posts of yours. :) This being said, have you taken a look at “My 7 lean years model for FFH”? I make the assumption of 0% ROE for 3 more years… So, 7% is just wonderful!! ;D ;D Ok, I am only joking, but I guess you are right when you say I want to spend a lot of time thinking about my investments, then I want to stay with them through thick and thin… Of course, until something clearly deteriorates for the worst, or I am offered an obscene price to sell them! giofranchi